Intellectual property rights in the global creative economy report 2013

Intellectual Property
Rights in the Global
Creative Economy
October 2013

© World Economic Forum
2013 - All rights reserved.
The views expressed are those of various participants in the discussion and do not necessarily reflect the views of all participants, the
organizations with which they are affiliated, or of the World Economic Forum.
REF 031013

Contents
4

Message from the World Economic
Forum’s Global Agenda Council on
the Intellectual Property System

5 Introduction
6

Megatrends Driving the 21st
Century Creative Economy

10 Publishing
11 Audio-Visual Works
13 Music
14 Software and Lessons from Free
and Open Source Models
16 Recommendations
16 Digital Copyright Principles
17 Global Agenda Council on the
Intellectual Property System
2012-2014 Members

Intellectual Property Rights in the Global Creative Economy

3

Message from the World Economic Forum’s
Global Agenda Council on the Intellectual
Property System
Intellectual property (IP) is about promoting progress and
innovation. The global IP system should be seen as a tool to
regulate and facilitate trade, information and knowledge in
innovative and creative goods and services.
While IP may seem like a foreign concept to many, the
fruits of it are everywhere; consider mobile phones, cars,
music, medicine and products bought in a supermarket. The
knowledge and human creativity embodied by the IP in these
products make the modern world possible.
IP rights do not simply benefit creators but, rather, society
as a whole. In today’s interconnected knowledge-centric
society, the economic stakes of an appropriate IP framework
are high. IP enables greater investment in products and
services to improve society, including life-saving vaccines
and medicines, and high-yield, drought-resistant crops that
increase the world’s food supply. By leveraging the IP system
for social and economic growth, society will benefit from a
wider base of knowledge, increased investment in research
and development, broader support of creative arts, greater
access to open markets and better consumer protection.
Given the challenges facing the global economy, the
IP system is more important than ever in providing the
framework to foster new products and cultivate new
inventions that are instrumental in creating the next
generation of jobs, investments and growth.

4


In this context, the World Economic Forum’s Global Agenda
Council on the Intellectual Property System seeks to raise
awareness of the importance of IP in trade facilitation,
innovation and entrepreneurship. It also strives to develop
its vision; make progress on IP as it relates to online creative
content; and increase access to IP and its benefits while
promoting transparency in the system.
Over the past year, the Council has taken a careful look
at how technology trends and a globalized economy are
reshaping the way we create, distribute and access content.
The results of that study, presented here, are intended to
help everyone with an interest in the IP system − including
policy-makers, content creators and consumers − build a
thriving 21st century creative content ecosystem.
David Kappos
Partner
Cravath, Swaine & Moore
USA
John Villasenor
Nonresident Senior Fellow
The Brookings Institution
USA
Tiffany Misrahi
Knowledge Manager,
Global Agenda Councils
World Economic Forum

Introduction

Much of the world’s intellectual property (IP) is embodied in
music, movies, videos, books, articles, illustrations and other
creative content. Thanks to the on-going revolution in digital
devices and services, that content is being created, moved
and consumed in increasingly complex ways.
This creates challenges – and opportunities – for the global
intellectual property system arising from multiple trends.
Distribution models are shifting towards instantaneous,
ubiquitous access, sometimes using social networks, and
increasing the reach of content creators. New technologies
are allowing content creators to engage directly with their
audiences in innovative ways and enabling new mechanisms
for collaborative content generation. Business models
are shifting as well, with licenses for content access often
replacing ownership of copies of content. In addition,
increased cross-border movement of content is raising
jurisdictional challenges, including potential incompatibilities
between national legal systems.
The need to continue updating IP systems generally and
copyright frameworks specifically to adapt to the digital
era has been widely recognized for several decades at
the national and regional level. However, in a world where
content creation and consumption have become truly global,
it is also important to consider the associated IP issues in a
global context.

To contribute to the goal of an improved global IP system,
it is important to consider the forces shaping IP generation.
The first section of this paper contains a set of key
“megatrends” that are shaping the global creative economy.
It is followed by descriptions of how IP has been handled in a
set of selected creative content areas. The selection of areas
covered is not meant to be exhaustive; it is intended to help
convey the diversity of approaches that have been used. As
the descriptions of these content “verticals” clearly convey, a
one-size-fits-all approach to addressing intellectual property
would be inappropriate in light of the many types of creative
content.
The paper concludes with a set of recommendations and
a list of digital copyright principles. They are intended to
help policy-makers ensure that the world’s IP systems keep
pace with the changes in how content is created, distributed
and consumed. They aim to assist everyone involved in
IP – including policy-makers, companies, consumers and
individual content creators – in maximizing the benefits that
IP can provide.
More generally, approaches to managing and protecting
IP rights in the global creative economy should recognize
the central role that creative content plays in expressing the
thoughts, stories and aspirations of people in every country
of the world. Protecting and enhancing that role is a key
ingredient to achieving long-term global economic prosperity.


5

Megatrends Driving the 21st Century
Creative Economy
Much of the world’s intellectual property (IP) is embodied in
music, movies, videos, books, articles, illustrations and other
creative content. Thanks to the on-going revolution in digital
devices and services, that content is being created, moved
and consumed in increasingly complex ways.

Hajkowicz, Stefan, Hannah Cook and Anna Littleboy, Our Future World: Global
megatrends that will change the way we live (2012 Revision) [REPORT], CSIRO (2012),
available at http://www.csiro.au/Portals/Partner/Futures/Our-Future-World-report.aspx.
1

This creates challenges – and opportunities – for the global
intellectual property system arising from multiple trends.
ubiquitous access, sometimes using social networks, and
increasing the reach of content creators. New technologies
are allowing content creators to engage directly with their
audiences in innovative ways and enabling new mechanisms
for collaborative content generation. Business models
are shifting as well, with licenses for content access often
replacing ownership of copies of content. In addition,
increased cross-border movement of content is raising
jurisdictional challenges, including potential incompatibilities
between national legal systems.

Getting cloudy:
New technologies

iIt’s a small world:
Increasingly global
market

Times are changing:
Shifting business
models

Let’s get together:
Increased user
involvement

Step by step:
Complex chains of
derivative works

Anytime, anywhere:
New access models

The need to continue updating IP systems generally and
copyright frameworks specifically to adapt to the digital
era has been widely recognized for several decades at
the national and regional level. However, in a world where
content creation and consumption have become truly global,
it is also important to consider the associated IP issues in a
global context.
To contribute to the goal of an improved global IP system,
it is important to consider the forces shaping IP generation.
The first section of this paper contains a set of key
“megatrends” that are shaping the global creative economy.
It is followed by descriptions of how IP has been handled in a
set of selected creative content areas. The selection of areas
covered is not meant to be exhaustive; it is intended to help
convey the diversity of approaches that have been used. As
the descriptions of these content “verticals” clearly convey, a
one-size-fits-all approach to addressing intellectual property
would be inappropriate in light of the many types of creative
content.
6


The paper concludes with a set of recommendations and
a list of digital copyright principles. They are intended to
help policy-makers ensure that the world’s IP systems keep
pace with the changes in how content is created, distributed
and consumed. They aim to assist everyone involved in
IP – including policy-makers, companies, consumers and
individual content creators – in maximizing the benefits that
IP can provide.
More generally, approaches to managing and protecting
IP rights in the global creative economy should recognize
the central role that creative content plays in expressing the
thoughts, stories and aspirations of people in every country
of the world. Protecting and enhancing that role is a key
ingredient to achieving long-term global economic prosperity.
The early 21st century has been a period of unprecedented
change in how people communicate, interact and work
– both individually and collectively – to generate creative

content. Much of this change is being driven by a set of
overarching megatrends – i.e. areas where a number of
trends or important patterns of activity converge.1 Because
these megatrends are the synthesis and aggregation of these
multiple trends, this adds confidence to the potential that
they will have significant impact on the creative economy of
the future.
The Global Agenda Council on the Intellectual Property
System undertook a process to identify a large number
of trends and see where they clustered, interacted and
reinforced one another. From this group of clustered trends,
six significant megatrends arose.
1. Changing means of access and consumption:
ubiquitous access, often using social networks. Roles of
intermediaries are also changing.
Thanks to the Internet, improved wireless networks, mobile
devices that consumers carry everywhere they go, and
the growth in cloud computing, the concept of location
and access are increasingly decoupled. Using today’s
technology, it is possible for a consumer to stream a digital
copy of a song stored on a home server so that it can be
listened to at work, in a car or thousands of miles away on
vacation.
Social networks also play a key role in content distribution.
Interestingly, this distribution is often indirect. Twitter
messages, for example, are often used to convey links to
online content as opposed to the content itself. Because
they have such enormous numbers of users, Twitter,
Facebook and other social networks can drive exponential
growth in content distribution over time periods as short
as several hours. In some cases – in particular, when the
associated content involves important news events – content
distribution via social networks can be a fundamental factor
in shaping events in entire countries or regions of the world.
Finally, the roles played by intermediaries are evolving.
Traditionally, intermediaries were part of the physical
distribution chain from creator to consumer. Today, digital
distribution of content still involves intermediaries (such
as Internet service providers), but the role they play is
different – and in many ways more complex. One example
is the significant recent growth in “over-the-top” content
distribution in which a consumer uses the Internet to receive
a movie, television programme or other work from a third
party content provider.
These changes can create friction with licensing frameworks
that have not yet caught up with the full set of consumption
models enabled by today’s networks and mobile devices. In
particular, the technology that allows a consumer to quickly
mirror legitimately purchased content on multiple personal
devices, and to access that content with little regard to
location, can sometimes collide with licensing constraints.
Resolving these tensions in a manner that both facilitates
reasonable use and protects the interests of right holders
will be one of the most important challenges in updating
licensing models in the next decade.

2. New technologies: Big data, the increasing complexity of
virtual content, new technologies including 3D printing,
and technology convergence are reshaping the creative
economy landscape.
Technology has long been a key driver of change in how
people create and disseminate content. In past centuries,
the printing press, camera, phonograph, radio and television
all spurred new approaches to generating and distributing
creative works.
The technology changes in the past several decades,
however, have impacted the creative process at an
unprecedented pace. Writing, animation, photography,
architectural design, moviemaking, graphic arts and many
other creative endeavours have been revolutionized by
information technology advances. The coming decade
will see the expansion of creativity-enhancing technology
into a literal third dimension thanks to 3D printers enabling
increasingly complex structures to be produced at the push
of a button.
One direct consequence of improved technology is increased
efficiency. Ideas can be more quickly and easily expressed
and exchanged. But perhaps even more fundamentally,
technology can enhance the underlying creative process. 3D
printing can enable prototyping to be far more integrated into
the design cycle, greatly expanding the range of solutions
that a designer can explore. The Internet, cloud computing
and advanced wireless devices and networks have
increased the amount of information that can be generated
and incorporated in creative endeavours. These same
technologies also facilitate the creation of complex virtual
worlds populated by a wide range of virtual content.
Big data and the complexity of today’s systems create
both large challenges and large opportunities for innovation
generally and the creative economy specifically. The
challenges include developing new methods to harness the
information and power in a growing sea of numbers. The
opportunities lie in the discoveries and innovations that these
data could contain, suggest or enable.
3. Increased user involvement: There are increasing
numbers of participatory opportunities to engage with
both the creation and consumption of content, and
opportunities for co-production of content.
The past decade has seen enormous growth in shared
content contributed by millions of users around the globe.
Thanks to the range of license choices developed by
organizations such as Creative Commons,2 content creators
have a wealth of options to choose from when sharing their
work with others.
One of the most spectacular examples of successful usergenerated content is Wikipedia, which now has 25 million
articles in 285 languages.3 There are about 100,000 active
contributors to Wikipedia, and it is one of the world’s most
popular websites.4

Wikipedia.” Wikipedia: The Free Encyclopedia. WIKIMEDIA FOUNDATION, INC., 5
September 2013, http://en.wikipedia.org/wiki/Wikipedia (last visited on 12 September
2013).
4
Id.
3

About, CREATIVE COMMONS, http://creativecommons.org/about (last visited on 12
September 2013).
2


7

Another interesting and possibly far-reaching change to
the creative economy involves the potential blurring of
traditional lines between content creators and users. In
applications such as massively multiplayer online games,
users can be both contributors to and users of complex
virtual environments. The Internet enables increased user
involvement involving traditional forms of content as well.
Recording artists are able to engage with their audiences
much more directly than in the past. Moreover, content
service providers can provide streams that are customized to
the tastes of individual consumers.

“buys” a digital song is almost always purchasing a license.
In some respects, this shift is transparent to consumers,
who continue to enjoy substantial flexibility in how they
consume legitimately acquired content. But there are
important changes as well. An owner of a copy of a work
generally has the right to transfer ownership through a sale
or other transfer (such as a donation), or to loan the work. A
licensee, by contrast, often has a more limited set of options.
Licensing frameworks that could allow consumers to have
greater flexibility while still protecting the interests of right
holders are therefore of interest.

Increased user involvement provides an opportunity to
crowdsource creative content at an unprecedented scale.
However, it also raises challenges with respect to ownership
and rights to the resulting content. One important issue is
the potential lack of clarity in ownership of user-contributed
content. Very often, the policies applying to user-contributed
content are not clearly articulated, and even when they
are, many users may not be aware of them. Even when
ownership is clear – for example, if licensing terms for a
particular service clearly stipulate that user-contributed
content becomes property of the company offering the
service – there can be issues of equity. In an era when
content creation is becoming much more collaborative
and democratized, it will be important to ensure that the
incentives to content creation become democratized as well.

Another important trend is for consumers to pay for access
rather than ownership. This has led to the growth of
music services that provide increased personalization for
consumers while also returning benefits to artists each time
their music is heard. This may move to other domains such
as books or movies as well.

4. Shifting business models: Increasing pressure on
traditional business models from new business models,
including lower marginal costs of production for content
distributors, and a shift for consumers away from
ownership of copies of content to licensed access to
content.
Information technology advances have revolutionized the
relationship between content providers and consumers. As
the global communications infrastructure has improved, it
has become practical to deliver a greater variety of content
over the Internet and cellular networks. This move to
electronic distribution has been illustrated by changes in
how consumers obtain songs and, more recently, movies. A
digital song generally occupies far less storage space than a
full-length movie. Thus, while the Internet has long been used
for delivering digital music, until relatively recently streaming
or downloading movies to a home was often cumbersome.
Now, however, consumers in many parts of the world
routinely obtain digital movies over the Internet.
These trends have not only altered the nature and speed
of content delivery, they have also upended traditional
distribution models. Media purchases or rentals at bricksand-mortar retail establishments have been largely replaced
by electronically-delivered content. The marginal cost
needed to produce and deliver an additional digital copy
of a work can be negligible, making it possible for content
distributors to respond to consumer demand in a much more
agile manner than in the past. In addition to being delivered
quickly, content can be packaged into a far greater variety of
offerings than was possible in the past.
The traditional model, under which consumers were owners
of legitimately purchased copies of a work, is being replaced
by one in which consumers are often licensees. Thirty
years ago, the purchaser of a legitimate copy of a vinyl
record was an owner of that copy; today, a consumer who
8


The last 15 years have undeniably been jarring to traditional
business models for content distribution. But there is strong
cause for optimism that new business models – such as
services built around providing access rather than ownership
– can offer something for everyone. Content owners can
use the flexibility of the Internet and mobile devices to reach
audiences that are both larger and more efficiently targeted.
At the same time, today’s consumers can choose from a
much greater variety of services than in the past.
5. An increasingly global market for content: Globalized
commerce in creative works provides consumers with
a wider range of choices, and gives content providers
access to larger audiences.
The Internet can enable content to move across a city, a
country or an ocean with equal ease, providing content
distributors with a level of access to the global market that
would have been unimaginable only a few decades ago.
Consumers get a wider range of choices; content creators
get access to larger audiences. In addition, today’s platforms
and services (e.g. Amazon, iTunes) are often available in
many different countries. The shape of the global market is
also changing. A rising middle class in emerging economies
is leading to increased content creation and consumption
and to more complex global flows of creative works. At the
same time, it is changing the very nature of the content being
shared, which is becoming more diverse in language, culture
and message.
However, cross-border content flows involve challenges
as well. Most fundamentally, many aspects of national
legal frameworks for addressing intellectual property rights
were developed before the spread of high-speed global
communications networks. Today, a single piece of content
can involve a copyright owner in one country, a consumer
in a second country, and cloud storage facilities in a third
country. National approaches to content access can cause
challenges, for example, for consumers who may find that
licensing frameworks can impose geographic restrictions
they consider burdensome.
International agreements such as the World Trade
Organization’s TRIPS treaty provide an important mechanism
addressing intellectual property rights globally. But more
needs to be done, particularly in terms of improved crossborder licensing frameworks and more efficient mechanisms
for resolving potential conflicts involving multiple jurisdictions.

6. Increased fragmentation of copyright ownership: The
atomization of content and increased production of
derivative works are causing increased fragmentation of
copyright ownership.
The Internet facilitates the creation of a much more diverse
set of derivative works than in the past. Content on the
Internet – including images, graphics, text and open source
software – is routinely excerpted, repurposed and then
incorporated into complex chains of derivative works. This
has many potentially positive consequences, since creators
of derivative works have access to a diverse and growing
base of content on which to build.
However, it is important to ensure that the rights of copyright
holders whose content is incorporated into derivative works
are respected. This includes maintaining fidelity to licensing
provisions associated with content that might impact
downstream use. For example, some open source licenses
require that derivative works be released to the public under
the same license terms, and that they not, by contrast, be
converted into proprietary software. Education can help in
ensuring that derivative works are created and distributed
responsibly.
Orphan works – i.e. works for which the owners of the
associated copyrights are either unknown or unreachable –
are another growing challenge. Orphan works are not new,
but they have grown in number in recent years in tandem
with the overall growth in digital content, thus increasing
the need to address the liability and other issues that can
accompany their use. Handling of older, pre-digital orphan
works also raises important questions as libraries move to
digitize their collections for online access.
Copyright authorities in multiple jurisdictions, including the
United States and Europe, are actively working on new
solutions to address these issues. In October 2012, the
European Commission released a directive setting out
“common rules on the digitization and online display” of
orphan works.5 The same month, the US Copyright Office
released a “Notice of Inquiry” expressing an interest in
examining the “current state of play for orphan works” and
the changes “in the legal and business environments during
the past few years that might be relevant to a resolution of
the problem”.6

Orphan works: Directive 2012/28/EU, EUROPEAN COMMISSION, 19 June 2013,
http://ec.europa.eu/internal_market/copyright/orphan_works/index_en.htm (last visited
on 12 September 2013).
6
Orphan Works and Mass Digitization Notice of Inquiry, 77 Fed. Reg. 64,555 (22
October 2012), available at http://www.copyright.gov/fedreg/2012/77fr64555.pdf.
5


9

Publishing
Over the past decade, the rapid proliferation of tablet and
mobile computer devices like the Apple iPad and Google
Nexus and increasing connectivity have led to higher
demand and evolved consumption patterns for the creative
written content. Writers, publishers and others in the
publishing field are facing a dramatically altered landscape
regarding content creation, dissemination and publication.
Adjusting to these changes will require a broader portfolio of
approaches to managing copyright than in the past.
Traditionally, a publisher often acquired copyright from the
author and assumed at least some of the financial risk of
producing and distributing the resulting books, magazines,
academic journals and newspapers. Publishers of printed
works would carve up rights by territories, and own and
manage the rights to a work on a territorial basis.7 With the
growth of the Internet and mobile communications networks
and devices, distribution has become increasingly digital
and global. The Internet, by nature of its architecture, is not
defined by the same national boundaries, making online
enforcement of territoriality difficult.8 While these changes
create new opportunities for publishers to engage directly
with a broader customer base, they raise new challenges as
well.
For creative works distributed in digital form, new
technological advancements and evolving business models
are leading to new distribution models that do not fit neatly
into traditional frameworks. For example, consumers today
often access intermediary online content stores (for example,
the Amazon Kindle Store) to gain licensed access to content
and, in some cases, can then download the work onto their
own devices. Digital rights management (DRM) is used to
help ensure that the content is used in accordance with the
terms under which it was provided. Thus, while consumers
in the past would become owners of copies of a work
physically embodied in a material object such as a printed
book or newspaper, today’s consumers of printed works are
often licensees (but not owners) of a digital copy.
There are increasing indications that the transition from
paper to digital publishing can be a win-win for copyright
holders and consumers. In January 2013, Amazon called
e-books “a multibillion dollar category”, noting that e-book
revenues were up about 70% in 2012.9 The last few years
have also seen a growing number of newspapers migrate
to subscription models, in some cases very successfully.
The New York Times, for example, had “attracted about
640,000 paying customers to its digital versions” by the
end of 2012.10 The Wall Street Journal’s digital network,
which includes sites such as WSJ.com, MarketWatch.com
Fingleton, Therese and Jennifer Wilson, The writer’s guide to making a digital living:
Chapter 5 - Copyright in new media, Sydney, Australia Council of the Arts (December
2008), http://www.australiacouncil.gov.au/writersguide/copyright_in_new_media_
industry (last visited on 1 March 2013).
8
Frank Coelho, Understanding Territorial Rights, DIESEL, 21 June 2010, http://blog.
diesel-ebooks.com/2010/06/21/understanding-territorial-rights/.
9
Laura Hazard Owen, Bezos: With ebook sales up 70% in 2012, Amazon has hit
“transition” it expected, GIGAOM, 29 January 2013, http://gigaom.com/2013/01/29/
amazon-reports-increased-profits-and-ebook-sales-up-70-in-2012/.
10
Eric Pfanner, Papers Worldwide Embrace Web Subscriptions, N.Y. TIMES, 31 March
2013, http://www.nytimes.com/2013/04/01/business/media/more-newspapers-aremaking-web-readers-pay.html.

and Barron.com, reports “more than 1.3 million paid digital
subscribers and average[s] more than 50 million visitors per
month”.11
In addition to providing a new mechanism for traditional print
publications to connect with readers, digital distribution has
created entire new categories of published written works,
greatly increasing the choices and participation opportunities
available to consumers of written content. Today, there are
private blogs, curated blogs, web-only publications such as
Slate, and social networks such as Twitter and Facebook. In
addition, many publications now have thriving “comment”
forums allowing readers to engage in lively debates in
response to specific articles and postings. Electronic
publishing has also enabled governments to disseminate
information much more quickly regarding proposed
legislation, hearings and other activities, increasing the
efficiency of participating in the legislative process.
Unsurprisingly, these changes are also creating challenges.
With creative written work so easily distributed over the
Internet, publishing companies are finding it more difficult
to enforce territoriality given the anytime, anywhere access
expectations of many of today’s consumers. DRM has
also proven imperfect despite provisions that prohibit
circumvention at the international (through WIPO) and
national levels. Many publishers are struggling to identify
the business model that strikes the most effective balance
between free and paid content. Not all newspapers have
chosen to migrate to a subscription-based online model,
and not all that do make that change experience success.
In the academic world, there is a vigorous on-going debate
regarding open access to papers published by university
faculty and other researchers.
However, on balance, the move to digital distribution has
been a strong net positive for consumers, and increasingly
for content creators. Consumers have access to far more
choices than in the past; the corollary to this is that there is
room for far more content creators in the publishing realm.
The role of IP frameworks in promoting the value of written
content in the global economy is more important than ever.
Evolving interpretations of copyright law can have important
consequences for publishers with respect to global pricing
strategies.12 Jurisdictional differences in interpretations of
content licenses can raise challenges as well. Ideally, it would
be desirable to achieve an increased level of international
agreement regarding these issues, thereby providing a more
consistent global environment for creators, distributors and
consumers of written content.

7

10


The Wall Street Journal Digital Network: Fact Sheet, DOW JONES & COMPANY,
INC., January 2012, available at http://www.dowjones.com/djcom/FactSheets/
WSJDigitalFactSheet.pdf (last visited on 12 September 2013).
12
See, e.g. the US Supreme Court Ruling in Kirtsaeng v. John Wiley & Sons, Inc., 133
S.Ct. 1351 (2013), which will have a significant impact on global pricing for printed
works.
11

Audio-Visual Works
This section focuses primarily on the independent film
sector rather than the major Hollywood studios, which are
mostly financiers and distributors of films. Audio-visual (AV)
works are generally produced by independent companies
which are either longstanding businesses or entities created
merely for the purpose of producing an individual film. With
some exceptions, the major studios (the “majors”) generally
do not produce their own films; instead, they focus on
financing, development, rights acquisition, marketing and
merchandising. This is a global business and the majors
are active in nearly every part of the world. While the majors
may be dominant in many markets (with some notable
exceptions, e.g. India), the AV sector is a vital component
of any country’s national economy and cultural identity. In
addition to film production, the financing and creation of
other AV works for exploitation on TV, home entertainment
and increasingly online platforms are an important part of the
landscape.
This section looks primarily at film works (rather than TV
programmes) which are exploited across media including
cinemas and the Internet, and on DVD and TV. Both
independent studios and the majors are adapting to
the opportunities and challenges posed by new digital
technologies. Improved communications networks have
already wrought significant change in the sector by
challenging traditional business models. AV content owners
have used these opportunities to reduce release windows,
develop new technologies (digital cinema, ultraviolet, etc.),
launch new online services (e.g. video on-demand) and
enforce their rights. One particular challenge faced by the
AV sector as new business models take hold online relates
to whether consumers will continue to want to own content
or merely rent it. The sector is frequently criticized for not
adapting quickly enough; governments in some parts of the

world are considering legislative intervention that would limit
contractual freedom often as part of broader considerations
of copyright reform. At the international level, in June 2012 in
Beijing, the member states of the World Intellectual Property
Organization enacted protection for AV performers after well
over a decade of debate.
The independent production, financing and distribution of AV
works is composed of a complex network of large, mediumand small-scale enterprises each specialized in specific
activities. Given the level of financial investment required,
most AV businesses will seek to share or outsource the
financial risk involved in film production and distribution. This
is often done by selling rights by platform, language and/or
territory to entities specialized in marketing and distributing
AV content in the various exploitation channels (cinemas,
online, DVD, TV, etc.). Investors are often attracted by the
creative force and commercial potential of a given AV project.
In many cases, even before the actual production/shooting
of the film has begun, various rights will be sold by territory
and/or mode of exploitation. Otherwise, the film may not get
made.
Filmmaking is research-and-development intensive:
developing scripts, acquiring underlying rights, casting,
location scouting, production designs, etc. These
development and pre-production activities are essential to
the preparation of the film and can carry huge costs before
a single frame is even shot. In many cases, the film does
not progress to principal photography due to a lack of the
necessary financing, causing the project to be shelved and
forcing the producer to absorb the loss. AV production
cannot function unless it returns strong working capital for
the producer to recoup the investment and finance future
projects.


11

Underlying film production is the copyright system, which
provides a crucial strategic tool for securing financing and
optimal exploitation of AV works by means of the exclusive
rights granted to and/or acquired by producers to license
the works to users (e.g. to film and video distributors,
broadcasters, online platforms, etc.). Thus, copyright is
much more than a mere remuneration model. Instead, it
permits industry to generate a surplus beyond the basic
financing requirements and compensation of its creative
participants – a surplus which is necessary to ensure an
on-going supply of films. Further, it is worth noting that the
incidence of collective licensing in the AV sector is low. The
rights are centralized in the AV producer who relies on the
transfer (by law and/or contract) of exclusive rights granted
under copyright law to organize the financing, production
and distribution of AV works.
Contractual freedom and the right to choose the terms,
including the distribution channel and the territorial scope of
the rights licensed, are crucial to maximize revenues from
AV content. As a general matter, producers who control
the relevant rights can negotiate licenses covering several
territories, linguistic options and/or platforms. Licensing
decisions are driven by commercial demand. AV right holders
should be open to commercial negotiation for licenses
covering multiple territories and/or distribution channels
where such licenses are bargained at arms’ length.
Despite the increasingly borderless nature of digital
networks, local and targeted distribution and marketing
efforts are required to promote and sell films in both home
and international markets. For example, just within the EU,
each of the individual European linguistic markets carries its
own challenges and requires targeting its individual cultural
specificities. This means that each linguistic market requires
an individual investment in marketing and distribution.
Indeed, audiences are attracted to films by topic, language,
timing and mode of distribution, all variables which are the
subject of the particular expertise of producers and their
partners specializing in the various distribution channels.
While there is some growth in multi-territorial services,
platforms and aggregators appear focused on national or
regional markets. Imposing particular licensing models can
backfire and inadvertently facilitate monopolization of the
market by players with greater purchasing power, to the
detriment of the many smaller and mid-sized companies
that constitute the backbone of independent film and TV
production. In addition, constraints on licensing models
could weaken cultural diversity.
While technology has enabled many advances in the AV
industry, one unfortunate consequence is the growth
of copyright infringement. The main way to fight online
copyright infringement is through innovative legal alternatives.
However, a focused enforcement policy is an essential
element of developing the market for legal online services.
Due to the unique financing and distribution model of the
AV industry, piracy has damaging effects beyond the lost
revenues. For example, piracy damages the value of films
by lowering the license fees that may be obtained from
local distributors (who cannot compete with “free” sources),
thus removing the incentive or, in many cases, the ability to
finance, produce and distribute future films.

12


In addition to being contrary to international norms, the
proposals for flat rate “compensation” or compulsory
licensing for the Internet fail to take into account the
substantial financial investment necessary to produce a film,
or the difficulty of ever reaching a profit, after the production,
marketing and distribution costs are paid. The future of the
AV sector will depend not only on individual creativity and
entrepreneurial vision, but also on a supportive legal regime
that nurtures innovation through contractual freedom and
exclusive rights.

Music
Of all of the forms of creative content, music may provide the
best example of how the shift to a digital world can impact
content creators, consumers and the business models
that connect them. The first reason is its universality. From
the earliest recorded history to today, music has been an
important part of the culture of nearly every civilization the
world has known. The second reason is less fundamental
but nonetheless of great practical consequence: when
represented digitally, music requires far less storage than
movies. Thus, as it has become possible and then easy over
the past 15 years to distribute content digitally, it is music
that has often been at the vanguard in encountering both the
opportunities and challenges of a digital world.
Musical works typically have more than one copyright
holder. Copyrights for musical compositions are often held
by songwriters and music publishers, while sound recording
copyrights are usually held by artists and record labels.
Performing rights organizations (PROs; also sometimes
called collecting societies) can play a central role in collecting
and distributing royalties. Royalty rates can be negotiated
directly between music copyright holders and users,
negotiated with users through an intermediary such as a
PRO, or in some cases determined by governments through
statutory rate setting proceedings.
For almost the entire 20th century, recorded music was
generally provided through broadcasts on terrestrial
over-the-air AM and FM radio, inclusion in television and
movie soundtracks, and sales of physical copies of sound
recordings. For many decades, records were the most
common format before being complemented by various
tape formats in the 1960s, 1970s and 1980s, and then
almost entirely supplanted by CDs in the 1990s. Sales often
occurred either in person at retail establishments or through
mail order.

Yet, there is cause for optimism as well: 2012 was the first
year since 1999 that music industry revenues experienced
year-over-year growth rather than decline.15 The number of
people paying for subscription services grew a remarkable
44% in 2012,16 providing a strong indication that new
business models for music distribution can be a win-win for
both content owners and consumers.
The environment for managing music copyrights is more
complex than ever, as music creators, record labels, PROs
and governments work to facilitate new mechanisms for
today’s consumers to get legitimate music content. Crossborder music delivery in particular is an important trend that
will require attention at the regional and global level.
In July 2012, as part of its broader efforts to promote a
“single market” for intellectual property,17 the European
Commission proposed measures to improve music licensing
by modernizing collecting societies.18 Such regional
approaches can play a vital role in providing right holders
with improved transparency and in making regional music
delivery markets more efficient. However, in a world where
music distribution is increasingly global and instantaneous,
the process for identifying the copyright owners and
permitted uses associated with a particular piece of music
can still be inconsistent and inefficient. To address this, it will
be important to consider steps including voluntary regional
and/or global music copyright registries and international
harmonization of performance remuneration rights. While
registration of music copyrights is common today at the
national and regional level, those registries are used primarily
to facilitate copyright enforcement. By contrast, there are
opportunities to implement regional or global registration
frameworks specifically designed to facilitate licensing and
identification of right holders in an increasingly globalized
distribution environment.

Today, thanks to the growth of the Internet and continuing
declines in digital storage costs, the landscape has become
very different. Traditional broadcasting methods have
been augmented by the emergence of “pureplay” Internet
providers, satellite radio, cable and a growing variety of
interactive services. Sales of physical copies of songs are
being replaced by online purchases.
For holders of musical composition and sound recording
copyrights, the transition to digital distribution has long been
viewed as a double-edged sword. One the one hand, music
can now be delivered in a far greater variety of ways, offering
expanded opportunities for songwriters, recording artists
and consumers. On the other hand, music piracy remains
a major concern. It is no accident that annual global music
industry revenues have dropped from nearly US$ 30 billion in
199913 to US$ 16.5 billion in 2012.14

Randy Lewis, Global music sales up 0.3% in 2012, first increase in 13 years, L.A.
TIMES, 26 February 2013, http://www.latimes.com/entertainment/music/posts/la-etms-global-music-sales-increase-20130226,0,7884714.story.
14
IFPI publishes Digital Music Report 2013, IFPI.ORG, 26 February 2013, http://www.
ifpi.org/content/section_resources/dmr2013.html.
13

Id.
Id.
European Commission Press Release, Copyright: Commission proposes easier
music licensing in the Single Market, 11 July 2012, http://europa.eu/rapid/pressrelease_IP-12-772_en.htm?locale=EN.
18
Id.
15
16
17


13

Software and Lessons from Free and Open
Source Models
Much of the software produced in the 1950s and 1960s
was “open” in the sense that it was developed by computer
science academics and corporate researchers working
together and distributing results under principles of
transparency, sharing and cooperation. Simply because
of the way computers were built as large and expensive
mainframe machines in air-conditioned computer rooms,
they were frequently supplied on a lease rather than
purchase basis with services and accompanying software
supplied by manufacturers without additional charge. This
practice allowed for software to be a subject of study,
research and development, significantly progressed by
academics and corporate researchers with a common goal –
to constantly improve the software and spur innovation.
However, starting in the late 1960s and early 1970s with
proliferation of computing power at progressively lower cost,
and accelerating in the 1980s with the spread of personal
computers, new opportunities emerged and matured to
define a separate market for software: since software is
covered by copyright, which along with contract law provides
a legal basis for its owner to establish exclusive rights,
these rights were assigned or licensed under individual
terms depending on the underlying business model. In
fact, software developers have long been able to obtain
copyright protection for their works, but the practice to
commercially license software independently from hardware
components became widespread starting in the early 1970s.
Unbundling hardware and software components to be sold
separately and under different conditions opened the door
for a multibillion dollar software and service industry as most
customers moved to purchasing additional software and
services separately from hardware.19
To complete the business model of using copyright in
software as a property to be licensed independently from
hardware components, most commercially licensed software
is distributed in machine-readable “object code” format
only, which is difficult for humans to understand, analyse
or modify. The corresponding human-readable “sourcecode” is typically kept proprietary and not disclosed in
order to minimize chances that competitors will identify
and copy the methods embodied in the code. As a result,
proprietary software products are not only subject to a
variety of payment systems but also “closed” for the user to
understand and modify.
While the distinction between human-readable source code
and machine-readable object code reflects a legitimate
business model, some argue that users should be able
to study and change the software in use, e.g. to remove
malicious elements or identify and address security
issues, without having to rely on updates and support
from respective software vendors. This argument is often
supported by the experience of exponential growth of

See overview on software history at IBM available at History of IBM: 1960s, IBM.
COM, http://www-03.ibm.com/ibm/history/history/decade_1960.html (last visited on
12 September 2013).
19

14


software (both quantitatively and qualitatively) in the early
days of computers, when software, and especially its
modification and distribution, was mostly available without
any license constraints. Advocates of free and open source
software have long claimed that it can provide a superior
production method and leads to superior software.20
As a consequence of the on-going debate on software
business models, a variety of perspectives and positions
have evolved, in which supporters of free and open source
software focus on promoting software as “free” in the
sense that it is publicly available with fewer restraints as to
source code access, as well as further distribution of both
source and object code, not necessarily in the sense that it
is “costless”. “Free” software is the term used and strongly
recommended by the Free Software Foundation, which was
founded by Richard Stallmann in 1985. The term “open
source” software was developed and promoted in the late
1990s to clarify the main goal of software being available for
modification instead of being available without costs. For
details, see Jaeger/Metzger, Open Source Software, 3rd
edition, 2011. Hence, the main goal of the free and open
software approach is not to make software available free of
charge but under terms that facilitate studying and modifying
the software. To assure ability to modify and distribute, free
and open source software is released under public licenses
granting users the necessary rights to 1) run the program
for any purpose, 2) study and change the program, 3)
redistribute copies, and 4) improve the program and release
improvements.21
To fully and uniformly achieve these objectives, most public
licenses require that the respective source code must be
freely available and that modification must be allowed.
But the various public licenses differ tremendously in the
extent to which they impose additional restrictions on
the licensee. One of the most important but also most
controversial versions of such licenses are those that require
further licensees, who modify the software, to make such
modifications available under the same terms under which
the initial software was released (copyleft). Copyleft is an
essential criterion of the GNU Public License, or GPL. Such
copyleft licenses are drafted as legal mechanisms to ensure
that free and open source software remains freely available
and is not captured into closed and proprietary forms.
However, a variety of other public licenses allow greater
flexibility with regards to the “re-mixing” requirement, such
as the LGPL, the Mozilla Public License or even the BSD or
Apache License.22

See Raymond, Eric S., The Cathedral and the Bazaar (Version 3.0 ed.)(2000),
available at http://www.catb.org/esr/writings/homesteading/cathedral-bazaar/.
21
For details, see the Free Software Definition and especially the four freedoms by
the Free Software Foundation, available at What is free software?: The Free Software
Definition, GNU OPERATING SYSTEM, http://www.gnu.org/philosophy/free-sw.html
(last visited on 12 September 2013).
22
See detailed overview and analysis provided by the Institute for Legal Questions on
Free and Open Source Software available at License Center, IFROSS.ORG, http://
www.ifross.org/ifross_html/lizenzcenter-en.html (last visited on 12 September 2013).
20

While free and open source software was first seen as a
tool for tech-savvy enthusiasts and hackers, the widespread
diffusion of Internet access in the early 1990s allowed for an
enormous increase, indeed mainstreaming, in free and open
source activity and popularity. The volume of contributions
and diversity of contributors expanded sharply. A variety of
new free and open source projects emerged, most notably
Linux, an operating system developed by Linus Torvalds
in 1991. With almost 2.6 billion people connected to the
Internet, the Internet itself can be seen as the greatest
collaboration platform in history serving as a testbed for
various new business models, ranging from traditional
property rights and related sales or licensing modes to
crowdsourcing and sharing approaches. Fuelled by the
Internet, Linux itself moved from supercomputers to become
the basis for Android, one of the most popular operating
systems in the mobile industry.
Companies like Canonical Ltd and Red Hat, which operate
on a professional open source business model based
on open source software while selling subscriptions for
support, training and integration services, and platforms
like Kickstarter,23 which allow access to a variety of funding
and payment models, have spearheaded new perspectives
on business opportunities and strategies using Internet
technologies. In addition to the long known role of intellectual
property rights in stimulating investments, a variety of newer
factors are playing an increasingly important role for investors
and innovators alike, including cost-sharing synergies,
many-eyes to reduce or quickly address bugs, and ease of
customization that come with open source software.

Open and public licensing models such as the one
developed and demonstrated by the free and open source
software sector work alongside the current copyright system
and rely on exclusive rights vesting in the original author of
a work protected by copyright. Hence, there is an argument
that the current legal system works well and allows for
adequate flexibility and differing production and business
models. Yet, all software licensing models – open as well as
proprietary – “interfere” in a sense with the current mosaiclike approach of copyright defined by the rule of territoriality,
which gives each copyright holder a “bundle of different
national copyrights” instead of “one global copyright”.
Irrespective of how to interpret the wording of the Berne
Convention, and without a detailed analysis of all arguments,
the current tendency is to stick with the rule of territoriality
on questions of copyright, especially regarding the existence
and duration of copyright and neighbouring rights, moral
rights or even questions about fair dealing or limitations
and exceptions of the exclusive copyright.25 In addition, the
variety of different licensing models, including various public
and proprietary licenses, creates significant challenges with
regard to interoperability. Finally, the current system struggles
to keep pace with new technologies. Updating copyright
systems in a way that not only encourages additional
licensing models but also respects the originally envisaged
balance between author’s rights and public access is long
overdue.

In summary, it is clear that the software sector is enjoying
enormous growth in free and open source based innovation.
Despite legal constraints and issues around compatibility
between proprietary and public licensing schemes, the
software sector has evolved significantly and positively
over the decades since its inception, and is without doubt
one of the most innovative sectors of our times. Important
questions, however, remain: can the open source production
model be transferred to other industries? And what kind of
legal system do we need to encourage and foster innovation
and prosperity beyond the software sector?
Different industries require different methods of development.
Some industries have to rely on large-scale teamwork as
well as substantial capital costs as opposed to individual
contributions and low capital investment.24 But the free and
open source software sector can be seen as a role model
for flexible ideas and hybrid business models. Customer
needs, customer support and customer involvement will play
an increasingly important role in future business models. To
respond to this development, new methods of collaboration
and new governance structures as demonstrated by the
software sector can offer a potentially effective approach
to establish functional and innovative progress across
industries.

See FAQ, KICKSTARTER.COM, http://www.kickstarter.com/help/faq/kickstarter%20
basics (last visited on 12 September 2013).
24
See Lerner, Josh and Jean Tirole, The Economics of Technology Sharing: Open
Source and Beyond, Vol. 19, No. 2, JOURNAL OF ECONOMIC PERSPECTIVES, at pg.
99-120 (Spring 2005), available at http://www.nber.org/papers/w10956.
23

For details see § 301 of American Law Institute, Intellectual Property: Principles
Governing Jurisdiction, Choice of Law, and Judgments in Transnational Disputes, 2007
and Articles 3:102, 3:201, 3:301, 3:601 of European Max Planck Group on Conflict
of Laws in Intellectual Property (CLIP), Principles for Conflict of Laws in Intellectual
Property, Second Preliminary Draft (6 June 2009), available at About CLIP, MAX
PLANCK SOCIETY, http://www.cl-ip.eu (last visited on 12 September 2013).
25


15

Recommendations

Digital Copyright
Principles

– Governments should undertake regular reviews of
copyright frameworks in the digital era. In conducting
these reviews, governments should not only study the
changing creative content landscape in a world in which
much of the population now has at least one Internetconnected device, but also move to concrete action,
as appropriate where evidence demonstrates such
action is required, to update national copyright laws and
coordinate them between nations.

– Policy-makers should develop frameworks enabling
increased lawful access to content via the Internet,
thereby reducing the incentives to obtain pirated content.

– A voluntary global registry for copyrighted content should
be created to facilitate licensing of copyrighted material.
In contrast with national registries, which can continue
to play an important function in relation to jurisdictionspecific enforcement actions, a global registry would
be aimed principally at enabling copyright owners and
users to efficiently connect and identify licensing solutions
appropriate for a particular use.

– New approaches to addressing orphan works should be
developed and formalized. Technology changes in the
last decade have made it far easier to identify authors and
other right holders using reasonable efforts. Frameworks
for handling orphan works should be updated to reflect
these changes, and should be reviewed and modified as
appropriate in the future as search technology continues
to advance.

– Attention needs to be given to ensure that all players
in the value chain are contributing appropriately to
today’s distribution landscape. Collective management
organizations, right holders and policy-makers should
work together on global standards for acquiring and
distributing content use information.

– Policy-makers and content distributors should encourage
the development of globalized digital marketplace
approaches that could reduce geographical impediments
to commerce in digital works.

– Policy-makers and right holders should adopt a common
set of Digital Copyright Principles that can help ensure a
fair balance between the interests of copyright owners
and users.

1. Creators and producers of creative works should receive
meaningful protection, recognition and compensation
for their contributions to economic and cultural
development.

16


2. Copyright law should reflect an appropriate balance
between the rights of creators and copyright owners and
the interests of consumers and other users of works.
3. Copyright law should be regularly reviewed and updated
as appropriate to respond to new technologies and
uses.
4. Copyright systems should enable rights to be
meaningfully, practically, cost-effectively and
proportionally enforced.
5. A wide range of means should be available for creative
works to reach the public, as enabled by the Internet
and other technologies – maximizing choice for both
right holders and users. It is desirable to have as much
quality content as possible available in as many formats
as possible.
6. Licensing should be streamlined in a content-appropriate
manner and simplified to be as easy and efficient as
possible, including for different types of content and
across national boundaries.
7. The public should be educated about the purpose,
scope and nature of copyright protections, including
exceptions, and the reasons for proposed changes or
government action.

Global Agenda Council on the Intellectual
Property System 2012-2014 Members
Jorge Avila

President, Brazilian National Intellectual Property Office
(INPI), Brazil

Sara Boettiger

Senior Adviser

Syngenta Foundation for
Sustainable Agriculture

USA

Thaddeus Burns

Senior Counsel, Intellectual Property and Trade

General Electric Company

USA

Paloma Castro
Martinez

Director, Global Corporate Affairs LVMH

LVMH Moët Hennessy - Louis
Vuitton

France

Francis Gurry

Director-General, World Intellectual Property Organization
(WIPO), Geneva

Alisa Harbin

Head, Group Litigation and Intellectual Property

Novartis International AG

Switzerland

Kerstin Jorna

Director, Intellectual Property Directorate

European Commission

Belgium

David Kappos

Partner

Cravath, Swaine & Moore LLP

USA

P. H. Kurian

Principal Secretary, Information Technology, Government of
Kerala, India

Li Yuguang

Deputy Commissioner, State Intellectual Property Office of
the People’s Republic of China (SIPO), People’s Republic of
China

Steven Liew

Chief Government Relations Officer, Asia-Pacific

eBay Singapore

Singapore

Catharina Maracke

Associate Professor

Keio University

Japan

James Moody

Co-Chair

Global Access in Action

Australia

Sean P. Murphy

Vice-President and Legal Counsel, International
Government Affairs

Qualcomm

USA

Theodore Shapiro

Partner and Head, Brussels Office

Wiggin

Belgium

Say Sujintaya

Partner

Baker & McKenzie

USA

Antony Taubman

Director, Intellectual Property Division

World Trade Organization (WTO)

Switzerland

John Villasenor

Non-Resident Senior Fellow, Governance Studies and
Center for Technology Innovation

The Brookings Institution

USA


17

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